More than 1 million consumers file for bankruptcy protection in the United States every year, according to the American Bankruptcy Institute. For some, it's the best option they have to regain their financial footing. For others, however, it can be a dead end. If you're considering filing for bankruptcy, here's some things to consider regarding whether doing so could help or hurt your situation.

What Is Bankruptcy?

Any conversation about bankruptcy should start with understanding what it is, says Cynthia Podis, a bankruptcy attorney at Nashville, Tennessee, law firm Podis and Podis. "Bankruptcy is the legal way to take back at least some of your financial freedom either by repaying your debts or wiping some of them out," she says. According to the U.S. Courts, when you claim bankruptcy, certain debts are discharged or reduced, and creditors cannot take action against you for the discharged debts. Reduced debts must be paid according to a pre-determined schedule.

There are several types of bankruptcy, but the most common filing options for individuals are Chapter 7, which allows you to liquidate some or most of your debts, and Chapter 13, which enables you to repay all or part of your debts over a specified period.

When Should You Consider Bankruptcy?

Not everyone qualifies for each type — or chapter — of bankruptcy. To determine your eligibility for a particular type of bankruptcy, the bankruptcy court will consider several factors: your income, spending, debts, and assets — in other words, your ability to repay what you currently owe.

Podis says the best candidates for bankruptcy are usually people struggling with one or more of the following:

• Facing foreclosure
• On the verge of losing their vehicle
• Not making enough money to pay current bills
• Uninsured or underinsured with a serious illness and significant medical bills
• Widowed or divorced with excessive bills
• Threatened with legal action or wage garnishment
• Owing more than $10,000 in debt

"These are situations where a Chapter 7 or Chapter 13 can be a lifesaver," explains Podis." "You can use it to get yourself back on track."

When Shouldn't You Consider Bankruptcy?

If you're temporarily underwater, bankruptcy probably isn't for you, says Podis, adding that generally, people who owe less than $10,000 are not good candidates for bankruptcy. "If you're in over your head and losing sleep because there's not enough money coming in to cover your basic living expenses, that's bankruptcy — not being a month late on your electric bill," she says.

Likewise, bankruptcy may not benefit you if your debts cannot be discharged. Nondischargeable debts — those you're stuck with even after you successfully complete your bankruptcy case — usually include alimony, child support, income tax, student loans, and overpayment of government benefits.  That said, it still may make sense to file for bankruptcy protection in instances where discharging other debts "frees up" money which can be used to repay nondischargeable debts.

Before Declaring Bankruptcy

Even if you're a good candidate, bankruptcy should probably be last on your list of solutions. "Crunch the numbers before you resort to bankruptcy," Podis says. "If you consistently don't have enough money at the end of the month to pay your bills, sit down and do a budget. Write down every penny you spend for a week or two, and see where you're spending your money. You might find you can get by when making different choices."

If your budget is already tight, call your creditors and inquire about assistance programs. "Always try to deal with your creditors first," says Podis, adding that many creditors would rather discuss your balance and develop a payment plan than risk not getting paid at all.  Ask your lender about any options you have with respect to paying late fees and catching up on overdue payments. 

By taking the time to consider your eligibility, assess your situation, and review your options, you can ensure that you make the best choice.